Equities rally as US-China relations improve, Dollar General jumps

Equity markets in Europe are in positive territory heading into the close as US-China trading relations have taken a positive turn.

Europe

The Chinese ministry for commerce made it clear they are keen to strike a deal, but at the same time they will not be pushed around. Beijing admitted that further trade tensions will be harmful to everyone, and foreign firms operating in China won’t come under pressure, but at the same time, the country is willing to flex its financial muscles to inflict pain on the US should it see fit. The political mood in Italy has lightened too as there is a possibility the Five Star Movement and the Democratic Party might form a government and in turn avoid a political crisis, at least in the near-term. Markets like stability and the possibility of a government being formed is boosting sentiment.

Hays registered some positive full-year numbers, but the company’s cautious outlook hit the share price. Net fees and pre-tax tax profit increased by 4.8% and 3.2% respectively. The UK and Germany are important markets for the recruitment company, and management cautioned that trading in those countries is ‘tougher’ and there are ‘increasing signs of reduced business confidence’. Given the political uncertainty in relation to Brexit, it is no surprise that both regions are experiencing more challenging conditions. The firm issued a special dividend, which failed to win over traders.

Micro Focus lowered its revenue outlook and the stock has slumped on the back of the update. The company now anticipates that annual revenue will be between 6% and 8%% lower than the initial guidance, and the last guidance was for revenue to be 4-6% below the initial guidance. Micro Focus blamed an uncertain economic climate for the underwhelming trading update.

US

Equities are higher this afternoon as dealers are cautiously optimistic about the state of US-China trade relations. The commentary from Beijing earlier has set the tone on Wall Street. The US posted largely positive economic reports today. Second-quarter GDP was revised lower to 2% from 2.1%, and the revision was in line with economists’ expectations. The jobless claims rate was 215,000, which was a slight ticker higher form the 209,000 recorded last week, but the jobs market is still in good health. Pending homes sales in July slipped by 2.5%, which was a worrying sign as there has been some evidence the housing market has been cooling ,and today’s update underlines that view.

Dollar General shares are higher after the group posted an impressive set of quarterly results. Same-store-sales increased by 4%, which smashed the 2.4% consensus estimate. Revenue topped forecasts too. EPS came in at $1.74, while the traders were anticipating $1.57. It is also worth noting that Dollar Tree revealed solid same-store-sales figures, which topped forecasts too. By-and-large, we have seen positive updates from retailers in recent weeks, but the fact that discount retailers have performed well, suggests that US consumers are savvier.

Abercrombie & Fitch shares have sold-off on the back of poor second-quarter results. In the three month period, comparable sales were flat while traders are expecting an increase of 0.6%. The loss per share was 48 cents, while equity analysts were expecting 53 cents. The share price has been in a downtrend since 2011, and there is clear evidence the US retail sector is in rude health, but Abercrombie & Fitch are still underperforming.

FX

GBP/USD is a little lower due to fears of a no-deal Brexit. The bold move by Boris Johnson of shutting down parliament between mid-September and mid-October has spooked traders as it makes a no-deal scenario more likely, and it gives off the impression that Mr Johnson is driving for a no-deal Brexit, whether that is actually the case or not.

EUR/USD is a touch lower as German CPI cooled to from 1.1% to 1%, and the consensus estimate was 1.2%. The falling CPI rate suggests that demand is in decline, and that has chipped at the euro. A softer inflation rate in the currency bloc’s largest member might increase chatter about monetary easing from the ECB next month.

Commodities

Gold is fractionally lower as traders are willing to take on more risk and snap up stocks. The metal remains in its wider upward trend, and while its holds above the $1,500 region the positive outlook should continue. The bullish sentiments appears to be strong seeing as gold doesn’t fall that much on days when risk-on sentiment is high.

WTI and Brent crude are in demand today due to the conciliatory commentary from Beijing. China is a major importer of oil and seeing as the mood is lighter in relation to US-China trade, dealers are buying back into the energy market.

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